Tuesday, February 11, 2014

Judge sides with PERA against the city

It was a historic day when City Attorney Chris Melcher signed the lease with University of Colorado Health.

A retired judge has ruled against the city in its lawsuit with the Public Employees Retirement Association, ordering that the city cannot leave PERA without following the process specified in state law.

The ruling, issued today, stems from the city's contention that it could transfer all of city-owned Memorial Health System workers to University of Colorado Health, thereby relieving the city from paying anything to assure those employees' PERA retirement benefits are funded.

At stake is $200 million, which includes interest accrued since the lawsuit began in late 2012 when the city leased Memorial to UCHealth in a 40-year deal that included a payment from UCHealth to the city of $185 million specifically for the PERA liability. It was part of a total payment of $259 million made by UCH. That money has remained in escrow until the lawsuit was decided.

"We believe the court said the interest amount also applies," PERA attorney Adam Franklin says, noting the interest rate was 8 percent until Dec. 31 and now is 7.5 percent. "If they [city officials] want to continue to fight this battle, we believe this interest will continue to accrue."

Judge Harlan Bockman's order doesn't specify an amount to be paid to PERA, Franklin says, but rather he ruled on the legal question of whether the city must comply with a process outlined in state law for disassociating Memorial's employees from PERA. That process includes PERA board approval and a 65 percent majority vote of the employees affected in favor of leaving the plan. Then, the agency that's leaving the plan must pay PERA an amount to assure its employees' retirements are funded, based on an actuarial study.

The judge ruled:

The Court finds that the City and MHS violated the statutory termination provisions by failing to apply to the PERA Board to withdraw and by failing to comply with all of the statutory termination provisions prior to withdrawing its status as a PERA employer.... The Court orders MHS and the City to comply with the statutory requirements...."

Franklin says the most recent estimate produced by PERA shows the city owes PERA roughly $200 million.

PERA's news release:

This morning, a District Court judge ruled that the City of Colorado Springs and Memorial Hospital cannot evade their approximately $200 million obligation to Colorado PERA.

“We are pleased with the judge’s decision, but more importantly we are relieved that the City of Colorado Springs and Memorial won’t be able to shift their financial burden to municipalities, and their employees, across Colorado. This decision helps maintain the integrity of Colorado’s best investment,” said Gregory W. Smith, PERA Executive Director.

In the decision, the judge stated, “The Court finds that the City and MHS violated the statutory termination provisions by failing to apply to the PERA Board to withdraw and by failing to comply with all of the statutory termination provisions prior to withdrawing its status as a PERA employer.” Further, the judge stated, “The mandatory process ensures that a withdrawing employer pays for the accrued, unfunded benefits of its retirees and employees before leaving PERA.”

Interim City attorney Wynetta Massey was tied up in a City Council meeting and could not be reached for comment, but the city issued a statement, saying, "It is inappropriate to make a comment at this time because the case is still pending."

Likewise, City Councilor Jan Martin, who strongly supported the lease along with other councilors, said via text message that Council has been told not to comment on the case, because it is still pending. Council is expected to confer with its attorneys on the matter next week, she said.

Former CityAttorney Chris Melcher, who was county city attorney at the time the city decided to sue but resigned effective Jan. 31, could not be reached for comment. Nor have we been successful in talking with the local office of Hogan Lovells lawfirm, hired to represent the city.

Meantime, it's unclear whether the city can appeal the ruling immediately to a higher court, or if some other step is necessary.

The judge's decision might call into question how good of a deal the city got by leasing Memorial. UCHealth officials said this week that revenues haven't been keeping pace with expenses, and that while Memorial needs $50 million in revenue just to break even, that through the first nine months of last fiscal year, ending June 30, 2013, it brought in only $38 million.

The city already has paid out nearly $1 million to settle another lawsuit brought against the city by bondholders when the city paid off Memorial's bond debt earlier than previously promised.

While some costs in the first full year since the lease are one-time expenses, the enterprise didn't do very well in that first year, as we reported here. The city started 2013 with $28 million in that account and ended with half that amount.